Constructive Adjustment

Construction claims handling is a true niche market. Among the categories of construction claims, builders risk, otherwise known as course of construction claims handling, need not be of concern given proper claims handling experience and protocol.

Some common misconceptions must be addressed regarding builders risk policy coverage. First and foremost, the builders risk policy is designed to insure projects under construction. This can vary from the smaller-sized projects — typically defined as less than $10 million in value and which might carry a standard builders risk wording — to the larger joint-venture projects that would require manuscript wording, with specific policy coverage tailored to the project in question.

Insurance examiners in today’s commercial insurance industry are called upon to handle an enormous caseload of various property and casualty claims. Many insurers have taken a specialized approach to allocating property losses of a large and commercial nature to the commercial property division. This can include risks of all sizes and severity typically falling within the “property” classification. It is difficult to gain a handle on specialized builders risk claims in such a diverse environment. Therefore, it is important to know the proper elements of both simplified and expert claims handling.

INVESTIGATING BUILDERS RISK CLAIMS

In the handling of any builders risk claim, the key elements of investigation are necessary from the outset to maximize proper claims handling with a view toward establishing equitable results — and ultimately file closure — in a shortened time period.

At the beginning of the investigation, it is key to arrive on scene and begin collecting scene information and data, including (but not limited to) photographing the causal elements and obtaining copies of prime and subcontracts (in- cluding contract specifications and plan drawings, both architectural and structural), as the loss would require.

The adjuster should attend the scene as promptly as possible. This will help to establish preservation of evidence to determine cause; it also helps to retain evidence, such as fractured victaulic couplings, for forensic inspection by a variety of parties and their respective origin and cause engineers.

IDENTIFYING THE INSURED PARTY

First, it is important to identify the insured party. When preserving evidence at the outset of an investigation, it is important to be conscious of the policies that govern the construction project. Typically the named insured on a builders risk policy would be the owner of the project, commonly called the Owners Controlled Insurance Policy (OCIP). Owners can take many forms, including real estate developers and conglomerates of public and private interests, to name a few.

Site contacts are perhaps the foundation of any professional builders risk claim handling. The independent adjuster must use the most appropriate personnel, given the required information. For example, is a site superintendent, project manager, site co-coordinator, project engineer or perhaps site foreman best suited to meet and discuss the required information? From whom is the best individual to obtain the statement? What information can the person contribute? Knowing the role of each individual and the type of information they can provide is key in the fact-finding process.

A named insured might also fall within the category of a general contractor. In this scenario, the contractor is the named insured and their respective insurers would be the handling insurer of the builders risk claim.

In any builders risk policy, additional named insureds would typically enjoy the same level of coverage as the primary or named insureds; and yet, under other subcontract provisions, subcontractors and sub-subcontractors, architects, engineers, consultants and project managers might be bound by terms and conditions to cover the deductible apportionment of the builders risk claim should they receive indemnity.

If the general contractor is the named insured or holder of the builders risk policy, this is also known as a Contractors Controlled Insurance Policy or program (CIPP).

It is key at the outset to properly identify the named insured, additional named insured and the coverage therein.

It is essential at the outset to obtain a copy of the project certificate of insurance as well as subcontract certificates of insurance to determine if and where other insurance may exist. Using this information, the insurance hierarchy can be identified, simplified and the necessary policies requested for review.

Policy wordings are a must for identifying insured property that typically forms part of the construction project. This can include property in transit, awaiting construction, in storage, installation, demolition, reconstruction and/or repair.

GATHERING INFORMATION

Another key element of the investigation focuses on the declarations page and the overall coverage grant to determine policy inception, expiry dates and applicable endorsements for any extension on policy periods. This may require the broker’s involvement to assist in identifying policy renewals from extensions and/or other project insurers.

Certificates of insurance are frequently issued at the outset of a project and may not necessarily take into consideration newly agreed upon amendments, change orders, new phases of construction and other addenda. As such, amended certificates of insurance are sometimes required.

A common misconception is that the gathering of subcontract documentation is not always necessary in a builders risk claim. In fact, subcontract documents can quite often contain the most important part of loss allocation through contractual transfer for risk control. Provisions allowing for subcontractors to bear a portion of the deductible can often be used and/or other contractual remedies exercised.

In the instance of exercising contractual remedies outside of the insurance model, it is important for the insurance professional to assist in notifying the insured of these options. However, they may wish to separate themselves from exercising the contractual remedies unilaterally.

It is interesting to note that statement-taking is often overlooked because the scene investigation might overshadow its importance. But it is imperative at the outset of a claim to take a comprehensive statement at the earliest opportunity in order to gain a proper snapshot of all early-loss-period information that can be accessed for future reference. The more detailed the statement, the better and more accurate your investigation. Your questions can help to resolve early remediation, damages qualification, quantification and ultimately indemnification of the insured.

ACCESSING THE SITE

With reference to damages, the insured plays a pivotal role in providing access to the site, contractual documentation, invoiced work and work performed. It is often necessary to visit the site during the damages qualification and quantification process while the project is ongoing.

As far as emergency work and remediation is concerned, most large constructors have emergency work protocols in place or agreements with the project owners to handle this internally using a member of the contractual hierarchy or outside contracted parties. The independent adjuster will retain outside service providers to attend and take an active role augmenting the emergency work process. The adjuster’s role then becomes an intermediary between the insured, the insurer and service providers on site.

It is important to consult the project owners and/or constructors about job site regulations related to retaining restoration subcontractors. These subcontractors will often be working with people accustomed to a unionized environment.

It is also important to consider that many insurance restoration contractors cannot act without a combination of onsite sub-trad es and outside insurance contractors. The independent adjuster can make this a seamless and cooperative effort.

The independent adjuster can also consult with project contractors and deploy a work strategy that best suits the loss and project parameters.

In the example of unionized job sites, it is important to outline to the insured that builders risk insurers will require site access by outside contractors; this may or may not conflict with job site rules and regulations. The independent adjuster can act as a conciliator, arrang- ing for site attendance by the restoration subcontractor.

For the insured, the first party prime contract is the first order of business. Work completion must go on at all times. Any builders risk scenario is generally a delay in the overall completion. Therefore, it will need to be determined whether or not these delays fall within the defined thresholds outlined in the Delay of Completion section of the policy. It is important to review and become comfortable with the coverage and extensions to that coverage that might include (but not be limited to) expediting expense and delay in completion. A thorough understanding of what the coverage entails is imperative to allow for proper indemnity.

Tracing the connections between the prime contract, subcontract and certificates of insurance is essential for properly adjusting valuation during damages quantification. The connection between the certificate of insurance and the insurance policy for soft costs coverage and what this coverage provides is often overlooked. An experienced independent adjuster can promptly identify the need for and the application of soft cost coverage.

Damage to a pre-existing adjacent property is often a source of deliberation. Does the affected area fall just outside of the project and yet forms a part of the overall pre-existing property? A complete understanding of the coverage grant and policy endorsements to ascertain whether pre-existing site coverage may apply will eliminate the need for other policies being triggered.

Other policy provisions include (but are not limited to) wrap-around coverage. What policies are primary and what is the intent of this coverage? A thorough understanding of this section of the policy is necessary in the professional handling of the builders risk claim.

Builders risk claims handling should not be seen as an unwieldy undertaking. In fact, with experience and expertise in hand, the independent adjuster can provide a one-stop claims handling solution.

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A common misconception is the gathering of subcontract documentation is not always necessary in a builders risk claim. In fact, it can contain the most important part of loss allocation through contractual transfer for risk control.

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Many insurance restoration contractors cannot act without a combination of onsite sub-trades and outside insurance contractors. The independent adjuster can make this a seamless and cooperative effort.